Allient Q3 2026 Earnings Call Transcript

Allient (NASDAQ:ALNT) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.

This transcript is brought to you by Benzinga APIs. For real-time access to our entire catalog, please visit https://www.benzinga.com/apis/ for a consultation.

View the webcast at https://viavid.webcasts.com/starthere.jsp?ei=1776422&tp_key=742d2cc9c4

Summary

Allient Inc. reported record revenue of $164.4 million, an 18% increase, with a 19% organic growth rate. Gross margin reached a record 36.6%, and operating margin hit a record 13.6%, with net income more than doubling from the previous year.

The company’s strategic initiative, STAN, has been instrumental in driving operational efficiency and profitability, significantly improving operating leverage and supporting both revenue growth and margin expansion.

Allient’s backlog reached a record $351.5 million, with strong demand in aerospace and defense, industrial sectors, and data center infrastructure. The company is focusing on energy management across various markets and is launching new products in the defense sector.

Management highlighted the importance of securing material inventory due to increased demand and potential supply chain constraints, emphasizing the strategic investments in capacity and technology to support future growth.

The company maintains a positive outlook for 2027, supported by a diversified portfolio aligned with long-term trends in automation, defense, and infrastructure, and plans to continue disciplined investments in growth opportunities.

Full Transcript

OPERATOR

Welcome to the Allient Inc. Third Quarter Fiscal Year 2026 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star-0 on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Craig Mihalik, Investor Relations.

Thank you, Craig. You may begin.

Craig Mihalik (Investor Relations)

Thank you. Good morning, everyone. Certainly appreciate your time today as well as your interest in Allient. On the call today are Dick Warzala, our Chairman, President and CEO, and Jim Michaud, our Chief Financial Officer. Dick and Jim will review our third quarter 2026 results, provide a strategic and operational update, and share our outlook, then open the line for your questions. As a reminder, our earnings release and the accompanying slide presentation are available on our website at allient.com. If you’re following along, please turn to slide 2 for our safe harbor statement. During today’s call we may make forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those indicated. These risks and factors are outlined in our SEC filings and in the earnings release. We will also discuss certain non-GAAP measures which we believe will be useful in evaluating our performance.

You should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. We have provided reconciliations of non-GAAP to comparable GAAP measures in the tables accompanying the earnings release as well as the slides. With that, please turn to slide 3 and I’ll turn it over to Dick to begin. Dick.

Richard S Warzala (Chief Executive Officer)

Thank you, Craig, and welcome everyone. Last quarter I described our performance as a demonstration of the earnings power of the model. The third quarter took a meaningful step further. We delivered record revenue, record margins, and record orders. It was a breakout quarter across both the P&L and the order book. Revenue increased 18% to a record 164.4 million and 19% organically, gross margin expanded 330 basis points to a record 36.6%, operating margin expanded 480 basis points to a record 13.6%, and net income more than doubled.

At the same time, orders reached a record 218 million and backlog ended the quarter at another record 351.5 million. What I am most pleased with is how those results came together. Higher volume, favorable mix, and continued operational improvements all contributed, and that combination drove strong operating leverage. Operating income increased 83% on 18% revenue growth. That is the kind of conversion we have been working toward, and it reflects years of work to reshape the portfolio, simplify the organization, and change how we operate. Simplify to Accelerate Now, or STAN, is a part of that story.

As I discussed last quarter, STAN is not a single program. It is how we work. It is the mindset and the tool set that allows our team to make decisions faster, remove obstacles, and execute with urgency and ownership. This quarter it helped us translate stronger demand into improved profitability while continuing to invest in capacity, technology, and productivity. In other words, we are not choosing between growth and margins; we are funding growth and expanding margins.

At the same time, demand was strongest in our targeted growth areas. Aerospace and defense grew 36% on strong defense-related demand. Industrial grew 15%, led by industrial automation, including solutions supporting data center and infrastructure, and vehicle was a meaningful contributor as well, which Jim will discuss in more detail. In the third quarter, data center and infrastructure-related sales were 21.1 million, or 12.9% of total revenue, up 40% from the prior-year period and up 5 million from the prior quarter.

Data center and infrastructure represents approximately 10% of our well-diversified business. Through our Allient Power portfolio, including active and passive harmonic filters, line reactors, and related solutions, we help customers reduce harmonics, protect critical equipment, and maintain clean, reliable power in increasingly compute-dense environments. As power density increases, demands on power quality, reliability, and energy management become more exacting, and that plays directly to our engineering strengths.

We have also been investing to support that opportunity. The additional capacity at our Milwaukee operation is now online and supporting our growth. That gives us additional production capacity to serve customers as demand continues to grow. We recognize that power availability, permitting, and community concerns can affect the pace and location of individual data center and infrastructure projects. Those are factors we continue to monitor. Against that backdrop, we continue to see strong growth in that business, and we remain focused on what we can control: differentiated products, disciplined capacity investment, and reliable execution for our customers.

Energy management goes beyond data centers. It is becoming increasingly more important in all markets and applications we serve. Regarding our defense vertical, we are focusing on applications where proven products and solutions create value for our customers, and we are aggressively launching several new products to meet the new and emerging needs of the defense markets. Our proven solutions in other adjacent markets bring critical core unit volume into the equation.

Simple translation: we are aligned with the changing paradigm to leverage existing solutions to drive out cost for defense-related solutions. More on this market later. So, stepping back, the third quarter reinforced three things: our portfolio is aligned with the right markets, our operating model is becoming more scalable, and demand gives us a positive outlook as we move into the fourth quarter and early 2027. With that, I will turn it over to Jim for a more detailed review of the financials.

James Michaud (Chief Financial Officer)

Thank you, Dick, and good morning, everyone. Please turn to slide 4. Third quarter revenue increased 18%, or $25.7 million, to $164.4 million. Foreign currency translation was a $900,000 headwind, so on a constant currency basis, revenue grew 19% organically. Sales to U.S. customers represented 57% of revenue, consistent with the prior period, with the balance primarily in Europe, Canada, and Asia Pacific. Looking at the verticals for the quarter, Industrial revenue increased 15% to $81.7 million, driven by continued demand for industrial automation and solutions supporting data center and infrastructure and other critical facility applications.

Aerospace and Defense revenue increased 36% to $25.5 million, reflecting strong defense-related demand for mission-critical platforms and systems as well as favorable program timing. This marks a continued acceleration from the 16% growth we reported last quarter. Vehicle revenue increased 27% to $27.3 million, primarily reflecting stronger commercial automotive demand. Part of that increase reflects shipments accelerated ahead of a customer’s model changeover, so we would not view the full growth rate as a new run rate.

Medical revenue was down marginally at 2% to $21.3 million as higher demand for surgical precision motion applications was more than offset by lower demand from medical mobility applications. Lastly, distribution sales, which are a smaller portion of our business, increased 39%, reflecting broad-based growth across the channel. Turning to slide 5, trailing twelve-month revenue reached $600 million, up 13% from the comparable trailing twelve-month period a year ago. Industrial represented 49% of revenue and grew 16%, supported by the same automation and infrastructure demand drivers I just discussed. For the quarter within Industrial, trailing twelve-month data center and infrastructure-related sales were $62 million, or 10.5% of total sales of 56%. Vehicle represented 17% of revenue and grew 14%, driven by strength in commercial automotive, truck, and construction applications.

Aerospace and Defense represented 15% of revenue and grew 10%, reflecting mission-critical defense demand and favorable program timing. Medical represented 14% of revenue and grew 4%, with the same underlying dynamics as the quarter. Distribution represented the remaining 5%. The key takeaway is that our balanced exposure across end markets and geographies continues to support growth, while the mix is moving toward higher-value applications in automation, power quality, defense, and precision medical.

Please turn to slide 6. Gross profit increased 30% to $60.2 million and gross margin expanded 330 basis points to a record 36.6%. The drivers were consistent with what we have been discussing: higher volume, favorable mix, and operational improvements, and supported by our Lean toolkit and Allient Systematic Tools. As we noted last quarter, mix can be lumpy from period to period, and this quarter benefited from a favorable mix of products and programs.

So, while we expect some quarter-to-quarter variability, the structural progress of simplification, Lean disciplines, footprint optimization, and productivity is building a more scalable margin profile, and we believe that progress is durable. On tariffs, our team continued to do an excellent job managing exposure. Over the past year, we have taken a disciplined approach that includes pricing actions where appropriate, supplier negotiations, sourcing adjustments, strategic buys, and broader supply chain diversification.

Those actions have kept tariffs from becoming a significant drag on our results, and our operations remain agile in adjusting to minimize the impact of ongoing trade policy changes. With respect to IA-related tariffs and the refund process established by the Court of International Trade, we are in the process of applying for refunds of tariffs paid. As of September 30, $651,000 of tariff refunds have been approved, and we have received $273,000 in cash refunds.

We continue to pursue the refunds available to us, but to be clear, tariff refunds were not a meaningful driver of the margin improvement this quarter. Moving to slide 7, operating income increased 83% to $22.3 million, and operating margin expanded 480 basis points to a record 13.6%. Last quarter, we noted our operating margin was the highest in roughly a decade. This quarter, we surpassed the company’s prior high. Operating costs and expenses were $37.9 million compared with $34 million, reflecting higher sales commissions, personnel-related costs, software and IT investments, and sales and marketing activity.

As a percentage of revenue, operating costs improved 150 basis points to 23%, demonstrating operating leverage even as we continue to invest in growth. Restructuring and business realignment costs were $15,000 compared with $800,000 in the prior-year quarter, reflecting lower costs associated with the Dothan transition and the timing of other stand actions. We expect full-year restructuring costs of approximately $2 million. Please turn to slide 8. The margin expansion and lower interest expense more than doubled net income. Net income increased 137% to $15.3 million, or $0.91 per diluted share, compared with $6.5 million, or $0.39 per diluted share, in the prior-year quarter. Adjusted net income increased 82% to $18 million, or $1.07 per diluted share, compared with $9.9 million, or $0.59 per diluted share. Adjusted EBITDA increased 46% to $29.7 million, and adjusted EBITDA margin expanded 340 basis points to a record 18%.

Our effective tax rate was 22.2%, consistent with the prior year, and we continue to expect a full-year 2026 tax rate of approximately 21% to 23%. Turning to slide 9, net cash provided by operating activities was $22.1 million for the first nine months of 2026, compared with $43.1 million in the prior-year period. The decline primarily reflects higher receivables associated with record revenue and strategic inventory investments to support demand. With backlog up more than $50 million since June, we have deliberately invested in critical materials to protect customer deliveries and supply continuity.

Inventory turns were 3 times in the third quarter compared with 3.2 times for full-year 2025. Days sales outstanding were 61 days compared with 57 days for full-year 2025, reflecting the timing of record quarterly shipments. Supporting growth and maintaining working capital discipline go hand in hand. Our focus is on collecting receivables, bringing inventory down as materials move through production, and converting stronger earnings into cash. Our financial priorities remain unchanged: strengthen working capital management, take out cost, and reduce debt.

Turning to capital investment, capital expenditures were $10.6 million for the first nine months compared with $5.1 million a year ago. As we invest in capacity, technology, and productivity, including in areas tied to data center and infrastructure, power quality, and automation, we continue to expect full-year expenditures of $12 million to $15 million. Please turn to slide 10. Total debt was $173.4 million at quarter-end, down $7 million from year-end 2025. Net debt was $133.7 million, and net debt to capitalization was 29%. Our leverage ratio improved to 1.49 times from 1.82 times at year-end, largely driven by higher trailing twelve-month adjusted EBITDA. The bank leverage ratio, as defined under our credit agreement, was 1.89 times, well within covenant requirements. We ended the quarter with nearly $40 million of cash and $162 million of unused revolver capacity.

That gives us meaningful financial flexibility to fund organic growth and pursue value-creating opportunities in a disciplined way. With that, if you advance to slide 11, I will now turn the call back over to Dick.

Richard S Warzala (Chief Executive Officer)

Thank you, Jim. Third quarter orders were a record 218.1 million, up 64% year over year and 8% sequentially, resulting in a book to bill ratio of 1.33 times. This is the second consecutive quarter of record orders which reflected broad based demand across key targeted markets led by industrial and aerospace and defense. The defense side of that demand is encouraging. Any inquiry and quoting activity we have previously discussed is turning into orders.

These are custom mission critical applications where our engineering depth matters. Backlog reached a record 351.5 million, up 52% year over year, 18% from June. Most of that backlog is expected to convert to revenue within six to 12 months, reflecting revised order patterns to ensure critical material availability on a longer term basis. Turning to slide 12, I will close with three themes. First, proven earnings power. We translated higher revenue into record margins and at substantially stronger earnings, demonstrating the leverage in our model. Dan is embedded in how we work, strengthening productivity, cost discipline and execution. Second, Targeted Growth Vectors Data center and Infrastructure is a growing contributor now at more than 10% of sales and we believe it will continue to exhibit future growth as well.

Aerospace and defense momentum is building. Our drone and unmanned systems offering is also taking shape. Since we discussed that on our last call, we have moved from building the platform to taking it to market. In August we introduced the Biaxelon Apex Drone Drive, a next generation electronic speed controller that combines Gallium Nitride power technology with advanced field oriented control. It complements our ever expanding line of custom gimbal and propulsion motor solutions and our newly launched standard off the shelf propulsion motors with several models slated to be produced both in the USA and Europe and designed to meet NDAA compliant supply chain requirements. What sets Allient apart is that we can supply both that is Standard and custom motor solutions to meet the exacting needs of our customers. Last month at AUSA we gave our drone portfolio its first public launch alongside several other products we supply for defense applications.

That included live demonstrations of the Viaxelon Apex drive powering a motor, our deployable drone hangar and storage systems, customized structural composites, self sealing fuel tank technology, counter UAS motors and drives, gimbal and remote weapon systems motors, electric steering solutions including autonomous and steer by wire solutions, traction solutions for ground vehicles and specialty motors and actuators used in a wide variety of defense applications.

Our booth and displays this year were quite different and innovative and we are very honored and proud that Allient Defense was voted Best in Show at the event. When presented by AUSA Leadership, it was stated that the award was based on the overall design, presentation and creativity of the company’s exhibit experience without revealing everything. Not only did the experience generate a buzz at the show, more importantly the response gave us a strong set of customer opportunities to pursue.

Hats off to our entire marketing and support team for thinking outside the box and truly changing the game and presenting Allient to the market. Back to the market and I want to be clear on expectations. We are in the early innings of developing our drone and counter UAS component sales, but as stated earlier, we differentiate ourselves by providing both off the shelf standards and application specific custom solutions to meet the most demanding requirements. While others may have designs, Allient already produces over 5 million motors annually and has the critical production capabilities and know how to produce these products at scale.

Our focus right now is on driving adoption of our solutions, getting them into customer qualification and design cycles, and building the pipeline. We view revenue contribution as more of a 2027–2028 objective. What makes us confident is that this builds on decades of engineering and custom mission critical motion solutions for a wide variety of defense applications while utilizing common technology to strengthen our broader defense, industrial and commercial offerings.

Third position for 2027 our record backlog of 351 million provides a positive outlook as we finish out the year and move into 2027. Our near term priorities are clear convert backlog, support our internal growth opportunities and maintain a disciplined approach to investment. Customer schedules mix and the trade environment will continue to affect individual quarters, but what gives us confidence is what we control a stronger operating model, a healthier balance sheet and a portfolio aligned with long term secular trends in robotics, automation, electrification, digital infrastructure, defense modernization, energy management and medical.

Before closing, I want to thank our team members around the world. Record results like these are earned on the shop floor, in engineering and across every function and they reflect the ownership and urgency that define Allient. We are building momentum with stronger earnings power and we believe Allient is well positioned to continue that progress with that operator. Let’s open the line for questions.

OPERATOR

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press Star one on your telephone keypad. Confirmation tone will indicate that your line is in the question queue. You may press Star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please, while we poll for questions.

Our first question is from Max Michaelis with Lake Street Capital Markets. Please proceed with your question.

Max Michaelis (Analyst at Lake Street Capital Markets)

Hey guys, thanks for taking my questions and congrats on the really strong quarter. First question for me, it seems like buying behavior has changed over the past 90 days. I mean, is this across all end markets or should we be thinking more A&D data center? Help me out with that.

Richard S Warzala (Chief Executive Officer)

Oh, I think we’re seeing it everywhere. It’s demand increases and material availability is driving customers and basically all markets to say, hey, let’s get some, make sure we have some materials on hand. That also can explain increases in inventory and impact, certainly cash flow. So it’s definitely changed. And you know, we are getting orders out there, getting orders in house a little earlier so we can secure materials to make sure that their demand for the future is satisfied.

That’s another reason why we talk about, you know, the backlog is going to ship over the next six to 12 months.

Max Michaelis (Analyst at Lake Street Capital Markets)

Okay, that makes sense. And then to the margins, really strong quarter. Just EBITDA, EPS as well. How much of that margin improvement is structural from the things you guys have done in terms of reworking the cost structure of the business versus mix?

James Michaud (Chief Financial Officer)

Well, I would say there’s, at this point what we’re seeing is mostly a mix change. The cost structure is we have, you know, gone ahead and we’ve made some structural changes to reduce costs. That’s ongoing. But what happens is the earnings power is showing through. It’s not, it’s a mix change as well. As we get over those break even points in our operations, then we’re starting to convert the, you know, the sales at an operating margin at a variable margin level, not just at a gross profit level as well as maintaining opex.

I mean that certainly has an impact on it. So. But mix was a, I will say to you, was a pretty significant factor as well.

Max Michaelis (Analyst at Lake Street Capital Markets)

Okay, last one for me, outside of A&D and data centers which seem to be getting all the love these days, obviously just with the high growth rates we’ve talked about, sort of the waste, the wastewater treatment opportunity. I know it’s early innings. I mean any, anything you can help me out there, especially with the sizable order growth. Any, any from the wastewater water treatment space?

Richard S Warzala (Chief Executive Officer)

Yeah, you know, and thanks for bringing it up. That is when we talk about, you know, infrastructure, that’s certainly one piece of infrastructure we’re talking about that has been a steady growth market for us over the years and we absolutely see it continuing. And also as we were discussing in the conference call here is we don’t want it to get lost. That energy management and a demand for energy and better power, quality of power, driving down cost, I mean that’s affecting everything.

So while data centers get all the attention because of the high consumption that’s causing everyone to take a look at energy efficiency and energy management throughout their business. So I do think that fits well with us as well. Perfect. Wastewater treatment plants are good. Yeah. Wastewater treatment is going to continue to grow in the future as well.

Max Michaelis (Analyst at Lake Street Capital Markets)

Awesome, guys. Thanks for taking my questions.

Richard S Warzala (Chief Executive Officer)

Thank you, Max.

OPERATOR

Our next question is from Tomo Sano with JP Morgan. Please proceed with your question.

Tomo Sano (Analyst at JP Morgan)

Hi. Good morning, everyone.

Richard S Warzala (Chief Executive Officer)

Morning, Tomo.

James Michaud (Chief Financial Officer)

Morning, Tomo.

Tomo Sano (Analyst at JP Morgan)

Congrats on the quarter, maybe on some investment and priorities into 2027 with the backlog at the record high level. How are you planning capacities and resource allocations, capital investment into Re2027 and then how are you balancing gross investments, cash regenerations and then debt reduction maybe? Thank you.

Richard S Warzala (Chief Executive Officer)

Go ahead, Jim.

James Michaud (Chief Financial Officer)

thanks, Tomo. Good question. So, as you, as you know, we’re constantly looking for those right. Opportunities that we add to our portfolio where it makes sense and we think that it can be accretive, you know, to our shareholders. You know, that we’ve made some strategic investments obviously in light of the, you know, trade and supply chain dynamic dealing with. So obviously our inventory has gone up 18 or 19 million this year. So I would expect that, you know, hopefully as we continue to get demand, we will make investments again in strategic components that are having longer lead times.

So you, you know, you heard Dick mention that, you know, converting the backlog over 6 to 12 months is simply because of how orders are coming in and the patterns that, you know, we’re now seeing with, you know, getting components and so forth, that might be a little bit more difficult. So I would tell you is that, you know, we’ll continue to, you know, to manage the debt. I think we’re really in a great position as much stronger balance sheet and we’ll look for those opportunities where we think we can make a difference to our portfolio.

Richard S Warzala (Chief Executive Officer)

Yeah, and Tomo, I’ll add a little bit to that too. We talked about the expansion in the Milwaukee facility which you had a chance to visit. That expansion is complete and they’re now, you know, beginning to set it up and utilize the space to handle the increased demand. We’re also looking at increasing, increasing our capacity in Mexico. That’s well underway, the plans for that. But it’s not just add capacity everywhere. I mean, we still are rationalizing our footprint and we’re putting the capacity where it’s needed.

I would also say to you that we’ve been staying right along here in capital equipment to support growth in these areas that we’ve seen and we’re experiencing right now. And we’ll continue to do that with the increase in sales certainly we would expect to see good cash conversion. So while we’ve been investing in inventory throughout the year, I think we’ll start to see the returns here as certainly the shipments have increased. So a good balance.

We’re very confident that we’ll be handling our debt extremely well and holding our cost to spending the money and investing the money where you know, it’s supporting major growth opportunities which we continue to see in all areas of our business. So that’s pretty exciting.

Tomo Sano (Analyst at JP Morgan)

Thank you, Dick and Jim. Just one more follow-up on a macro level and strategy. Questions on data centers and defense appear to be pretty important growth markets for Allient. But following elections the outlook for defense budgets and policy could shift. How are you assessing these opportunities and the related policy and demand risks, and then how does that affect your pace of capacity expansion and investments? How are you thinking about diversifying your end-market exposures that you spoke about a little bit in the prepared remarks?

Any color appreciated. Thank you.

Richard S Warzala (Chief Executive Officer)

Sure. So let’s start with the data center and infrastructure. Max asked the question about wastewater treatment plants — that’s infrastructure. You see factory automation; that’s not going to go down, that’s increasing. People are investing money, demand continuing. And these infrastructure projects take years, and they’re well underway. So in the short term we don’t really see an impact at all. We see growth — and when I say short term, I’m talking next two to three years.

No matter what happens, they can have a moratorium on new data center installations, but those that are already started need to be completed. And demand for AI is not going to go down; the Internet demand is not going to go down. The fact that we’re in other markets — for example, we’ll talk about defense in a second — but other markets, we’re well diversified, and that’s the strength of our portfolio. We consciously set out to ensure that we were a well-diversified company, and we worked so it’s not going to be boom or bust based upon one secular, and I think that’s our strength. So as these others are getting attention and concern about what may happen, we continue and stay focused on other markets.

We’re in semiconductor — we’re expanding our reach into that. We’re in photonics, we’re in life sciences, we’re in, as we talk about, robotics of all kinds. We’re in medical. That’s the strength of our model. Vehicles are still an area that we have strength in. And we mentioned when we talk about vehicles, it’s not just automotive. Matter of fact, automotive is kept to a certain level that we feel allows us the opportunity to get core unit volume and pricing advantages.

We’re in off-road, agricultural, construction, marine vehicles — all types. So I would say to you that diversification is why we feel very confident for the future. Talk about defense. I mentioned AUSA and our exhibit down there. We’ve never been busier. And what was interesting is the number of customers and potential customers outside of the U.S. that were at that show and looking for solutions. Demand is increasing globally — I think so. One thing that’s happened, the message is clear: they need to invest, and they are. And what that brings is some requirements that they’re looking for local production — so production in Europe, for example — and we’re fortunate that we have operations in Europe.

Forty-two percent of our business is outside of the U.S., and we have very capable engineering and production facilities in Europe. So if we see a decrease in demand in defense — and I’m not so sure we’ll see it that quickly based on replenishment, based upon the modernization that’s occurring and how these conflicts will be fought in the future is different, and they need different equipment — we have to stay up with the pace and we don’t see it slowing down.

We see Europe and Asia, to some extent, looking at increasing demand and applications. And as I said, our booth was busy not just for U.S. companies, but companies outside the U.S. as well.

Tomo Sano (Analyst at JP Morgan)

Great. Thank you for the details, Dick. I’ll leave it there. Thank you.

Richard S Warzala (Chief Executive Officer)

Thank you, Tom.

OPERATOR

Our next question is from Greg Palm with Craig-Hallum Capital Group. Please proceed with your question.

Greg Palm (Analyst at Craig-Hallum Capital Group)

Morning. Yeah, good morning. It’s a shame you picked a pretty bad day in the market to report, but it’s not going to stop me from congratulating you on your best quarter, probably by far, in history. So pretty amazing.

Richard S Warzala (Chief Executive Officer)

Thank you very much. We appreciate it. Thank you.

Greg Palm (Analyst at Craig-Hallum Capital Group)

So, I’m curious — maybe we start with, I don’t know if you want to lump them together — revenue, bookings. I’m just curious, is it coming from higher volumes from existing programs versus incremental demand from new customers? It’s hard to wrap my head around — at least on the booking side — the strength or the absolute level the last couple quarters. So maybe just give us a little bit more insight on what’s going on.

Richard S Warzala (Chief Executive Officer)

Sure. I would say to you, as you know, many of the long-term projects that we work on take months and years. As we’ve mentioned, we’re primarily custom-engineered products, and while we do sell some products off the shelf, 80-plus percent of our business is custom engineered. So there are long-term design-in cycles, and as they’re getting converted, you’re going through the various steps in getting approved and selling and turning it into shipments and revenue.

Certainly infrastructure projects have been worked on, and we’ve mentioned before — and just to repeat it so everyone’s on the same page here — we’re later in the game, we’re later in the stage. So when infrastructure projects start, they start clearing the land, they start pouring the concrete, they start laying all the electrical and plumbing needs and so forth. We’re basically coming in when equipment’s being installed, and so we’re later in the game.

So things that have been happening and the excitement that has been out there — and I think sometimes the question is, why aren’t we seeing it? I mean, I think we are seeing it, and it’s because we’re later in the installation or development process. As far as defense applications, there’s replenishment that’s going on and it’s not going to stop. There’s still a need to refill the pipelines based upon the conflicts that have occurred. And there’s new applications — for drone applications, you saw it at AUSA. We were showing drone motors and ESCs and drives, but in addition to that we were showing and exhibiting many of the other things that we do that support the counter-UAS market, the counter-drone market.

I’ve said before that for us that fits extremely well. They aren’t off-the-shelf motors. The motors were designed as a family for many of the smaller drones — not the larger drones — and many people could supply them off the shelf, primarily outside the U.S. But as we have moved through time here, yes, we have double-digit applications we’re working on, many of them custom, and the counter side of it as well is growing — tremendous interest in our composites and how we combine them together, our electromechanical actuation.

The other thing in the defense markets, which I think is going to shorten cycle times and fits directly into what we do really well: we’ve built commercial and industrial and off-road vehicle markets, and as the defense departments are looking today, they don’t have four, five, six, seven years to get them developed. They have to use product that’s available today. Our proven on-road/off-road products that have been out there — maybe not in quantities for defense equipment — may be in hundreds or thousands; on the commercial side, hundreds of thousands and millions. So we can show them a path to get there faster, get there less expensively, including the design cycle time, the capital requirements, and product costs down the road. But I would tell you that demand is strong and it has been strong and steady in all of our markets. And again, I’ll repeat, the diversification that we intentionally moved toward, I think, will help us — it’s helping us now and will help us as we continue forward.

Greg Palm (Analyst at Craig-Hallum Capital Group)

Yep, understood. And just from a behavior-of-your-customers standpoint, how are the lead times, and is there any concern or risk that some of this is customers that are stocking or getting ahead of normal just given supply chain? Or maybe this is all just new customers, new programs — stuff that’s been in the works — and now it’s all basically additive to an existing book that is growing in itself.

Richard S Warzala (Chief Executive Officer)

Yeah, so a couple things with the customers. I would say to you that as we see defense replenishment — we’ve talked about before — that’s real. Those are hard, firm orders. And the concerns as you get into some of those programs and in some of the high-performance applications that use critical rare-earth materials, that’s where we’re seeing our customers engaging with us and wanting to ensure that we have a secure supply chain. So when we talk about inventory increases, it’s to secure that so the demand isn’t going away.

In fact, what we’re seeing is that they want us to make sure that they can get product — to secure the materials that have been and may be a problem in the future. So we’re not seeing that. You’re not seeing pushouts. And I’ll be honest and tell you that, with the demand we’re seeing, nothing that we’re seeing today is telling us that we’re getting double ordering. It’s historical levels, new programs coming on board; that’s in addition to the historical programs and some of the other replenishment programs that are real, that we’re shipping to today and will continue to ship into the future. So our near-term battles are going to continue to be ensuring that we can secure material to meet customer demands.

There’s more demand out there than we can take today. And from that standpoint, what’s driving that is material availability.

Greg Palm (Analyst at Craig-Hallum Capital Group)

Yep. Okay. And then, just lastly, you talked a little bit about drones and counter-drone. It was unclear whether you’re starting to see or you’ve seen bookings, orders related to it. Sounds like interest is really high. But where are we in terms of booking orders or recognizing revenue associated with those product lines specifically?

Richard S Warzala (Chief Executive Officer)

Yeah, great. Until this past year — starting last year, I would say to you — we really focused hard on looking at the standard product lines that are used in most of the drones. We’d already been working on specialty applications for higher-class drones — the larger drones — counter-UAS products, but those volumes aren’t as high. Prices are higher, of course, and they’re custom engineered. They’re very sticky. What we’re seeing today is customers that we have been working with have a need for our entire platform — standard and custom engineered. And this is where I’ve said that we’ve got an advantage here. We know how to scale; we have scaled, and that’s the beauty of it. It’s not new to us. So when you’ve got companies coming on board saying, “We’ve got designs,” that’s great — but can they deliver? Well, we can deliver and we can scale.

So we’re starting to see — and what’s interesting is, even in that market — some of the higher-volume demand requirements that require automation, that require capital investment, require know-how, and that’s what we have. So in our numbers, you’re not seeing high growth because of drone demand. You’re seeing steady incremental growth over our past sales into that marketplace. And we’re just in the very early innings of seeing the growth that’s going to occur in not just the drone, but the counter-drone activities as well. So not much in there beyond incremental up to now.

Greg Palm (Analyst at Craig-Hallum Capital Group)

Okay. All right, appreciate all the color. Best of luck going forward.

Richard S Warzala (Chief Executive Officer)

Thank you, Greg.

OPERATOR

Our next question is from Ted Jackson with Northland Securities. Please proceed with your question.

Ted Jackson (Analyst at Northland Securities)

Thanks. And I’ll ask everyone Good morning, Dick. I mean, what a fabulous, fabulous set of results. Congratulations.

Richard S Warzala (Chief Executive Officer)

Thank you.

Ted Jackson (Analyst at Northland Securities)

A couple of questions. Some of the more fun ones were all taken, but let’s just start off with the vehicle revenue and the pull forward. Can you kind of quantify that and then maybe provide some, like how we should think about, you know, where that came from? In terms of future periods, is that, was that a pull forward from the fourth quarter or was it from the next few quarters? Just kind of help us so we can triangulate our numbers going forward?

Richard S Warzala (Chief Executive Officer)

Well, I don’t want to say something totally opposite to what you said. It’s not really a pull forward. We have, you know, today we’ve got certain past dues that if we were delivering, the numbers would have been even higher, and as a consequence of certain materials and capacity increases here that we’re working on. So what we shipped here in this quarter is not pulled from future demand. The demand’s there; we could have shipped more.

Ted Jackson (Analyst at Northland Securities)

And then, and that was out of… That was… And that was commercial vehicle driven. Is that what you said in commentary? Is that correct?

Richard S Warzala (Chief Executive Officer)

Across many markets, not just vehicle driven. Vehicle did grow and we did have, in vehicle, there was a specific case there where we had some increased demand, you know, I would just say a drop-in for increased volume. But in all the other markets it’s pretty normal.

Ted Jackson (Analyst at Northland Securities)

Okay, so then it was just, it was just, I mean, I wrote down in my notes, I thought you had said it was a pull forward or an acceleration of delivery, so I just assumed that it would come out of future periods.

Richard S Warzala (Chief Executive Officer)

No, if I said that, I said it incorrectly and I apologize for that. But I would say to you that the real message is that we’re not pulling out of future quarters. We’re trying to deliver from past quarters still.

Ted Jackson (Analyst at Northland Securities)

Well, I’m glad I asked the question to make sure that was clarified then. My next question, Dick, is, you know, when you were talking about, you know, kind of the demand across the board increasing and you made a comment that customers also are wanting to build more inventory. And, you know, I mean, so I guess where I’m trying to go with that is I know the end market demand is very, very strong. But am I reading that right that, you know, in the current environment, you know, everybody wants to hold a little more inventory just because of, you know, the changes, reshoring, difficulties in getting material?

So your customers are building, you know, they’re running at higher inventory levels and you’re running at higher inventory levels. And if that’s correct, at what point do you think that kind of normalizes?

Richard S Warzala (Chief Executive Officer)

Well, there’s a couple things, Ted. So you’re identifying key components; supply is becoming scarce. Okay. So they’re looking for us to lock that down. So it’s not about building more product for them and storing it on a shelf. It is about securing material so we can build product in the future. I don’t see our customers taking—I mean, especially as our demand’s ramping here—to production orders that we’ve had in place and releases against those.

You know, the demand that we’re seeing and what we’re shipping against is real demand, today’s demand. I’m not going to say that they’re not in some cases building their own safety stock and inventory. But, you know, typically they don’t tell us that. They want to make sure that they’re on the top of the list, and every customer is the same. And, you know, if you know that they’re building a safety stock and you know another customer that’s building for current production, you know, they don’t care about the other customer. They want to make sure that they’re satisfied.

So there may be some of that going on, and if it is, it’s early on in what’s occurring. But it is clearly materials and electronic components again—certain steels again—even insulation for reactors and motors and so forth. We’re seeing increased demands there. So it’s more about supply side and critical parts that they’re working with us to ensure. Magnets is another great example—making sure that we have them on order, we have access to the supply. That’s our inventory increase. I don’t sense that our customers are building inventory to any great levels because we keep getting pushed, you know, based on the demand that we have.

Ted Jackson (Analyst at Northland Securities)

So the commentary was really about your need to, you know, have a little heavier inventory set to meet your demand and, you know, basically ensure that you can deliver, you know, the tremendous backlog you have. Okay. And then my last question, which is probably a little more just, you know, on the G&A line item, which jumped quite a bit sequentially. And I just kind of was curious, you know, kind of what drove that and how would we think about that line item on a go-forward basis?

James Michaud (Chief Financial Officer)

Yeah, I mean, a couple of things, Ted. Right. Obviously, with the record sales and the increased sales that we’ve had over this year in particular, you know, commissions are higher, as you might expect. You know, our incentive program obviously kicks in. And so, you know, our performance has generated—you know, the strong performance is going to result in some higher incentives. And then what I would also tell you is, and again, I think a lot of companies are experiencing this, and I said it during my commentary, is that, you know, with cyber activity continuing to increase, you know, the cost of subscriptions and monitoring and, you know, our investments that we are making to ensure that we are catching, if you will, any activity in the cyber arena, you know, we’ve made some investments to make sure that our monitoring system is robust and, you know, best in class.

Ted Jackson (Analyst at Northland Securities)

And so when we think about it, given, you know, I mean, if we are going to assume you’re going to continue to perform at the level you’re at, and I would say your backlog and bookings and what you’re seeing says that you probably are, that going forward we would see, you know, G&A, you know, more into, you know, kind of that, you know, like this is more of kind of what we should expect on a quarterly run-rate going forward.

James Michaud (Chief Financial Officer)

Yeah, I mean, listen, we’re—obviously as a percentage of revenue it’s down—but, you know, obviously there’s more dollars that we’re spending and investments that we’re making to, you know, to promote Allient and to promote our product line and so forth. So, yeah, I would say that you’re going to see more dollars spent. But again, we’re leveraging our overhead.

Ted Jackson (Analyst at Northland Securities)

Fair enough. Okay. Hey, again, congratulations on the quarter. Thank you.

Richard S Warzala (Chief Executive Officer)

Thank you very much, Ted.

OPERATOR

Our next question is from Jerry Sweeney with Roth Capital Partners LLC. Please proceed with your question.

Jerry Sweeney (Analyst at Roth Capital Partners LLC)

Good morning, guys. Good morning. I think I’m supposed to talk to you in about five minutes on a follow-up call, so I have one quick question. We’ll see if everything else. Debt, your debt levels have come down significantly over the last couple of years. Cash flow, it feels like things are humming along. What are your thoughts on dipping your toe back into the acquisition pipeline, and where do you think is the best opportunity for Allient to maybe fill in some gaps, et cetera, on that front, if any?

Richard S Warzala (Chief Executive Officer)

Yeah. So I would say to you this: we’ve seen the market become pretty active this year, and we’ve been looking and we’ve looked at several opportunities. We have continued to remain very disciplined and look for something that would be complementary, would be additive to what we’re doing, and continuous on our diversification path. So I would tell you that we’re active and we’re going to keep—we’re not going to stop. When the right thing comes along that makes sense and continues to fit the profile that we’ve established, we will clearly be in a position to do it.

Jerry Sweeney (Analyst at Roth Capital Partners LLC)

I appreciate that. I will talk to you in a couple minutes. And thanks for all the detail today.

Richard S Warzala (Chief Executive Officer)

Thank you, Jerry. Thank you.

OPERATOR

There are no further questions at this time. I would like to turn the floor back over to management for closing comments.

Craig Mihalik (Investor Relations)

Thank you everyone for joining us on today’s call and for your interest in Allient. We will be participating in the ROTH Technology Conference in New York City on November 18, and then the Northland Virtual Growth Conference on December 16. As always, please feel free to reach out to us at any time, and we look forward to talking to you all again after our fourth quarter 2026 results. Have a great day.

OPERATOR

This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.